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Analyst Sees Oil Refiners Beating Short-Term Supply Crunch

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U.S. oil refiners can beat a short-term supply crunch by boosting the use of OPEC oil and diverting exports headed for Canada, an analyst said.

As a result, Cowen's Sam Margolin predicted that independent refiners will maintain positive free cash flows until the seasonally stronger fourth quarter revives earnings.

Refiners are getting squeezed by a drop-off in domestic supplies as drillers pull back according to Margolis, who noted a narrowing spread between the more costly Brent crude oil and cheaper West Texas Intermediary supplies.

But Margolis sees the crunch as temporary and expects supplies of West Texas crude to rebound in response to demand during the second half.

Margolis maintained an Outperform rating on a half-dozen mostly Texas-based independent oil refiners.

Those include Valero Energy Corporation (NYSE: VLO), Marathon Petroleum Corp (NYSE: MPC), Tesoro Corporation (NYSE: TSO), Western Refining, Inc. (NYSE: WNR) and PBF Energy Inc (NYSE: PBF).

Margolis predicts that second quarter earnings will come in above the Wall Street consensus for Valero, Tesoro, and Western Refining.

But Margolis expects below-consensus earnings from both Marathon and PBF in the second quarter.

Yet he said all six companies on the Outperform list will beat Street views for full-year results.

Margolis maintained Market Perform ratings on HollyFrontier Corp (NYSE: HFC), Alon USA Energy, Inc (NYSE: ALJ), Calumet Specialty Products Partners, L.P (NASDAQ: CLMT) and Northern Tier Energy LP (NYSE: NTI).

Latest Ratings for HFC

DateFirmActionFromTo
Feb 2019Morgan StanleyReinstatesEqual-Weight
Feb 2019Tudor PickeringDowngradesBuyHold
Jan 2019PiperJaffrayAssumesNeutral

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Posted-In: Cowen Sam MargolinAnalyst Color Reiteration Analyst Ratings

 

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